Winnipeg, Manitoba
February 16, 2007
Agricore United
(TSX:AU) announced today preliminary results for the first
quarter of 2007 that are expected to be significantly higher
than the corresponding quarter last year. The company expects
earnings before interest, taxes, depreciation and amortization
(“EBITDA”) of over $8 million for the three months ended January
31, 2007, an increase of about $11 million compared to the same
period in 2006.
On a trailing twelve month
basis to January 31, 2007, estimated EBITDA of approximately
$152 million
reflects a 21 percent improvement over the trailing twelve month
EBITDA of $126 million at January 31, 2006
and an eight percent improvement over the $141 million of EBITDA
reported for the company’s fiscal period
ended October 31, 2006. Improvements in EBITDA in the current
fiscal year are attributed almost entirely to
higher gross profit and lower operating expenses in certain
business segments. In addition, the trailing
twelve month EBITDA to January 31, 2007 reflects the results of
the company’s acquisition of Hi-Pro Feeds
(“Hi-Pro”) from the acquisition date of August 14, 2006. While
not necessarily indicative of future
performance, the pro-forma trailing twelve month EBITDA to
January 31, 2007, adjusted to give effect to the
pre-acquisition EBITDA of Hi-Pro for the six and a half months
to August 14, 2006, would be approximately
$158 million.
“These continuing
improvements in our operating performance reinforce our momentum
in all areas of the
company,” says Brian Hayward, CEO of Agricore United. “Over the
past few years, the expertise and
dedication of our staff and management teams have been
instrumental in implementing a number of positive
operational and financing initiatives. The benefits of these
initiatives are becoming more evident with
improving industry conditions and together with a number of
strategic growth projects we’ve recently
completed, are driving improved results and demonstrating the
significant value we can deliver to our
shareholders.”
“We’ve had some varying
challenges in each of our segments in recent years, but I’ve
always said that when
our segment performance is firing on all cylinders, there is
significant potential to improve our EBITDA and
cash flow,” says Hayward. “With the current agricultural markets
as favourable as they are in each of our
segments, I’m more optimistic than ever that we can deliver
solid growth in 2007 and beyond.”
As western Canada’s leading grain handler, Agricore United
expects to benefit from projected increases in
wheat export volumes due to its efficient country grain elevator
network and significant port terminal
operations. With global grain inventories at a historical low,
the Canadian Wheat Board (“CWB”) has
indicated that its exports of wheat are expected to increase by
about 2.5 million tonnes in the 2007 crop year,
although actual shipments in 2007 may be subject to the timely
resolution of CN Rail’s current labour
disruption. The trend to stronger wheat exports from Canada is
expected to continue for a prolonged period
based on current global production and consumption levels.
In addition to this positive
outlook for wheat, the growing biofuel sector is increasing
global demand for
canola. With the corresponding increases in commodity prices,
Agriculture and Agri-Food Canada (“AAFC”)
is forecasting that the high carry-out stocks that existed at
the beginning of the crop year will decline in 2007
and that canola exports for the current crop year should improve
by three percent. Furthermore, AAFC is
also projecting an increase in acres seeded to canola for 2007,
which should have a positive impact on the
company’s canola seed sales. Since Agricore United is also
Canada’s largest exporter of canola and a
significant retailer of canola seed products, the company is
uniquely positioned to capture the opportunities
arising in this area. In the first quarter of 2007, higher grain
shipments and lower operating costs have
already contributed to a $7 million improvement in EBITDA from
the same quarter last year.
This year, in the company’s
Crop Production Services (“CPS”) segment, favourable weather
conditions and
positive fertilizer industry dynamics are expected to result in
a $2 million (13.5 percent) increase in first
quarter EBITDA compared to the prior year. Higher natural gas
costs reduced gross profit by about $21
million in 2006, however lower natural gas costs in the first
quarter of 2007, combined with higher commodity
prices and a tightening of supply to support increasing corn
production in the U.S. for ethanol production,
should contribute to a recovery in fertilizer margins in 2007.
Most of the potential benefits to be derived from
the recovery in fertilizer markets are expected to be realized
in the third quarter of 2007, since more than 70
percent of the company’s CPS sales occur during this time
period. Notably, pre-sale bookings, which are
not recorded as revenue until the goods or services are
delivered, are over $130 million to January 31, 2007,
an increase of 37 percent over the prior year.
In the company’s Livestock Services segment, Hi-Pro continues to
drive improved operating results. Feed
tonnes sold to January 31, 2007 improved by 154,000 tonnes (56
percent) over the same period last year,
most of which was attributable to the Hi-Pro acquisition. As a
result, segment EBITDA in the first quarter is
expected to improve by about $2 million over last year and with
the full inclusion of Hi-Pro, annualized
segment EBITDA should be significantly higher than the 2006
fiscal year.
Gross profit & net revenue from services on a consolidated basis
is expected to exceed $90 million for the
first quarter of 2007, compared to $80 million in the same
quarter last year, and is the primary contributor to
improved EBITDA. Operating, general and administration (“OG&A”)
expenses for the first quarter of 2007
remain comparable to the same quarter of 2006, despite the
improvement in gross profit and the additional
expenses attributable to Hi-Pro. In addition to its results from
its ordinary course of business, the company is
also estimating additional expenses associated with responding
to the hostile takeover bid by Saskatchewan
Wheat Pool Inc. of about $3 million for the quarter.
On a trailing twelve month basis to January 31, 2007, the
company expects its cash flow from operations to
be about $90 million, a 23 percent improvement over the $73
million reported for the same period of the prior
year and a seven percent improvement over the $84 million
reported for its fiscal year ended October 31,
2006. This continues to exceed the company’s investment in
capital expenditures (excluding acquisitions),
and scheduled principal and debt repayments over the trailing
twelve month period ended January 31, 2007.
“The improvement in our results is a strong indication of the
inherent value of this company,” says Hayward.
“Our ongoing improvements in EBITDA and cash flow are strong
evidence of our ability to leverage our
efficient and diversified asset network, our superb market
connections to end-use customers, and our
expanding presence in a growing livestock industry. As we move
into improving industry conditions, Agricore
United will continue to apply our unique expertise and
capabilities to drive value creation for our
shareholders.”
Use of Non-GAAP Terms
Earnings before interest, taxes, depreciation and amortization
(EBITDA) are provided to assist investors in
determining the ability of the company to generate cash flow
from operations to cover financial charges
before income and expense items from investing activities,
income taxes and items not considered to be in
the ordinary course of business. EBITDA for the three months
ended January 31, 2007 is calculated as Gross Profit and Revenue
from Services (estimated at over $90 million), less Operating,
General and Administrative expenses (estimated at over $82
million) and excludes costs associated with the takeover bid
initiated by Saskatchewan Wheat Pool Inc. The items excluded in
the determination of such measures include items that are
non-cash in nature, income taxes, financing charges or items not
considered to be in the ordinary course of business. EBITDA
provides important management information concerning business
segment performance since the company does not allocate
financing charges or income taxes to these individual segments.
Such measures should not be considered in isolation to or as a
substitute for (i) net income or loss, as an indicator of the
company’s operating performance, or (ii) cash flows from
operating, investing and financing activities as a measure of
the company’s liquidity. Such measures do not have any
standardized meanings prescribed by Canadian GAAP and are
therefore unlikely to be comparable to similar measures
presented by other companies.
Agricore United is one of
Canada's leading agri-businesses with headquarters in Winnipeg,
Manitoba and extensive operations and distribution capabilities
across western Canada, as well as operations in the United
States and Japan. Agricore United uses its technology, services
and logistics expertise to leverage its network of facilities
and connect agricultural customers to domestic and international
customers and suppliers. The company's operations are
diversified into sales of crop inputs and services, grain
merchandising, livestock production services and financial
services. Agricore United's common shares are traded on the
Toronto Stock Exchange under the symbol "AU". |
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